By most measures and indicators the upward move of the past few months is getting a bit tired prompting many to start exercising caution and others to start piling on shorts both as insurance and as a means to profit from either the "healthy market-positive pullback" or "second-phase tsunami down" that is sure to come. I am no exception and have been putting on some of the leveraged contra – ETF's we are all coming to know and love as both insurance against my longs and as a start upon which to build should we start moving down — even though as noted in my last post I am a bit ambivalent on this strategy.
At the same time the market seems to be resisting the common wisdom that one needs to wait for the next correction to start adding to exposure and appears to want to go higher. That sentiment could turn on a dime though one has to believe if you are in the bubble business — you are not just going to fall down and let the markets undo all the huffing and puffing up we have seen since March. At the same time any intelligent bubble-maker understands they can't simply will the market up and down for more than a brief period and intervention — monetary or otherwise — is only likely to sustain itself if it builds on an underlying trend.
So if one believes this move is getting tired, and will not be sustained by still-weak fundamentals then the question arises as to what can be done to counter a gradual erosion of sentiment that leads to either ala TK "grinding-move" down or even more troubling swan dive as we saw in 2008 and first few months of this year.
A new stimulus program is always a possibility though that requires political cooperation which is not so easy to obtain these days. It also leads to more debt, etc., which likely translates into dollar erosion, higher gold and commodities and other problems. While that may end up happening in any case this is not likely to have quite as much bang for the buck the second time around leading to a reluctance to move in this direction therefore raising the importance of other options?
One interesting rumor in recent weeks is the potential for a new Treasury Secretary a development that has gained additional momentum since a Republican Congressman called for Timothy Geithner's resignation before the Joint Economic Committee and he gave what has been termed a "testy" response. In the last day or two there have been additional conjecture a prime candidate to replace him will be Jamie Dimon, a Democratic contributor who knows Obama from his Chicago-based Bank One days. Here is a story from yesterdays New York Post about this possibility:
I posed the question earlier today to the Head of Research for one Hedge fund, forwarding him the Post article and asking: "if this is true — and it does make some sense — despite the fact at least in my view it is a bad idea — the markets rocket when he is chosen no? is that the catalyst for next leg up?
The answer was "It would indeed send the markets up the next level in this new bubble".
Obviously this is just an opinion and we have no idea of knowing whether this will come to pass. Would be interested however in hearing thoughts here as to the odds and timing of a move like this, what would result should it happen, any alternative scenarios, and thoughts on how to play this trade.
